May 23, 2012

Worse Tax Bill

“Worse tax bill ever” is how one Kansas legislator described the tax reform bill signed by Gov. Brownback on Tuesday May 22, 2012. While not exactly all that he proposed in his State of the State address, the new law will cut taxes $3.7 billion dollars in 5 years. In true Kansas fashion, getting the bill to the Governor was not without controversy. Both the Kansas House and Senate passed their version of the bill which went to a conference committee. But then, both chambers raced to pass the other chamber’s version of the bill. The House won, passing the Senate version and sending the bill to the Governor to be signed.

The bill reduces Kansas individual income tax rates, increases some standard deductions and cuts many tax credits. Tax rates have been reduced from 3.5%, 6.25% and 6.45% to 3% and 4.9%. The standard deductions for Married Filing Joint and Head of Household have increased to $9000. But, from my reading, it looks like the single deduction stays the same. Gone are the adoption credit, child care credit and food sales tax refund. And the Homestead Refund is now limited to property owners. It looks like the Kansas Earned Income Credit is still alive (at least I found no mention in the bill or articles about the bill.) These changes will take effect January 1, 2013.

There are major changes to corporate returns too. The bill’s supporters argue that the tax reductions will create an additional 20,000 jobs annually (over regular job growth) in Kansas and draw new businesses to the state. One of most questionable changes is that exempts 191,000 businesses from income taxes by ending taxes on their profits. Starting in 2013, I won’t be paying any KS income taxes since almost all my income is from business profits (a sole proprietor) and what other income I have will be reduced by my standard deduction and exemption to $0.00.

This is a Tea Party bill. Their supporters have pushed the bill over the objections of moderate Republicans, Democrats and social activists. It’s a bill that increases the tax burden on lower and working class taxpayers while helping higher income taxpayers. Too much of the bill depends on the creation of jobs and new businesses that will bring in new income. If that doesn’t happen, projections indicate a $2.7 million dollar budget shortfall by 2017. Not good!

Disclaimer

Disclaimer

A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.